TMI Blog2012 (3) TMI 492X X X X Extracts X X X X X X X X Extracts X X X X ..... or the preceding financial year. In-fact, the reference to the bonus/ex-gratia paid in the preceding financial year of 2005-06 is clearly noted in the Resolution dated 13.3.2007 and thereafter, it has been resolved that the bonus/ex-gratia be paid at the same rates in the instant year also. Under these circumstances, in the absence of any other corroborative evidence led by the Revenue, we find that the Board Resolution No 55 dated 13.3.2007 has been merely disbelieved by the Revenue authorities without demonstrating any falsity in the same. Therefore, in so far as the briefness of the Board Resolution No 55 dated 13.3.2007 is concerned, we do not find any merit in the objections raised by the Revenue. Whether the Board Resolution No 55 dated 13.3.2007 can be said to have crystallized the liability for exgratia payment to the employees ? - In our considered opinion, the adoption of the Resolution No 55 by the Board of Directors of the assessee bank on 13.3.2007 invests the assessee with the liability to pay ex-gratia to its employees. The said Resolution having been adopted prior to the close of the previous year relevant to the assessment year under consideration, in our view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall give a reasonable opportunity to the assessee for presenting its case and then decide the issue as per law. Thus, on this Ground assessee succeeds for statistical purposes. Addition on account of contingent provision for standard assets - HELD THAT:- As carefully considered the rival submissions. In our view, the Commissioner of Income-tax (Appeals) has correctly appreciated the position and sustained the disallowance following the judgment of the Hon ble Supreme Court the case of Southern Technologies Ltd.[ 2010 (1) TMI 5 - SUPREME COURT as clearly pointed out that claim for deduction of an expenditure is liable to be governed by the provisions of the Act and not merely on account of the RBI guidelines. In our view, the ratio of the judgment of the Hon ble Supreme Court the case of Southern Technologies Ltd. (supra) clearly applies to the present case and the claim of the assessee has been rightly rejected by the lower authorities. Thus, on this Ground, assessee has to fail. Gat Sachiv salaries - AO disallowed the expenditure observing that no such salary has been debited to the Profit Loss account, but was debited to Gat Sachiv Salary Deficit Payable Account ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med deduction of a sum of ₹ 1,07,57,609/- under section 43B of the Act on account of ex- gratia payment to its employees. Such deduction was claimed in the computation of total income annexed with the return of income whereas no provision for such an expenditure was contained in the financial statements for the year under consideration, although the assessee was following mercantile system of accounting. As per the Assessing Officer, the said expenditure was not crystallized during the previous year relevant to the assessment year under consideration and, therefore, the same was not allowable as a deduction. On being show-caused, the assessee explained during the assessment proceedings that the expenditure on ex-gratia payment to the employees of ₹ 1,07,57,609/- crystallized in the previous year relevant to the assessment year under consideration and for this purpose, reference was made to Resolution No. 55 passed by the Board of Directors of the assessee bank on 13.3.2007. It was explained that the actual payment towards the liability was made on 18.10.2007. Accordingly, it was contended that that the liability having crystallized before the end of the previous year re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so justified the crystallization of such liability before 31.3.2007 on the basis of the Board Resolution No. 55 passed on 13.3.2007. 6. As per the Commissioner of Income-tax (Appeals), the liability could not be said to have been accrued during the year under consideration inasmuch as no provision was made for such expenditure in the account books for the year ended on 31.3.2007. As per the Commissioner of Income-tax (Appeals), other than the purported Board Resolution, the assessee had not filed any corroborative evidence like Minutes of the discussion with the Employees union or correspondence with Sindhudurga Zilla Madhyavarthi Karmachari Sanghatana, Kudal as was the case with regard to a similar Resolution dated 17.7.2006 pertaining to the earlier financial year of 2005-06. As per the Commissioner of Income-tax (Appeals) for the earlier financial year 2005-06, assessee had passed a detailed Resolution on 17.7.2006, i.e. after the close of the relevant financial year based on correspondence and discussion with the Employees union and considering all these, deduction thereof was allowed by the Assessing Officer in the preceding year. As per the Commissioner of Income-tax (Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Kedarnath Jute Manufacturing Co. v. CIT 82 ITR 363 (SC). In the course of the hearing, the learned Counsel also relied upon the judgment of the Hon ble Bombay High Court in the case of Addl. CIT v. Buckau Wolf New Engineering Works Ltd. 46 CTR 200 (Bom). The learned Counsel accordingly contended that the expenditure in question duly accrued before 31.3.2007 on the basis of the Board Resolution No 55 dated 13.3.2007 and the same having been paid before the filing of the return of income, was not only allowable under section 43B of the Act, but in the alternative, it was also allowable under section 37(1) of the Act since payment of ex-gratia to employees is an admissible deduction covered under section 37(1) of the Act and in this connection, reliance was placed on the judgment of the Hon ble Calcutta High Court in the case of CIT v. National Engineering Industries Ltd. 208 ITR 1002 (Cal). 10. On the other hand, the learned CIT- Departmental Representative, justified the disallowance made by the lower authorities on the ground that assessee had failed to establish with cogent evidence that the liability in question had accrued during the previous year relevant to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 has been doubted; and, secondly, the non-existence of the relevant entries in the account books for the year ending 31.3.2007 towards such liability. 12. In so far as the second objection of the Revenue is concerned, the argument of the Revenue is that the assessee is maintaining its account books on a mercantile basis and, therefore, the liability towards ex-gratia payment to employees pertaining to the year under consideration ought to have been provided in the account books pertaining to the year under consideration. The contra-proposition of the assessee that the non-existence of entries in the account books is not determinative of the question, which is based on the judgment of the Hon ble Supreme Court in the case of Kedernath Jute Mfg. Co. (supra) is sought to be distinguished on the ground that the Hon ble Supreme Court was dealing with a issue of a statutory liability. In our considered opinion, the question that assessee had not made an entry in its account books for such liability, even though it was following a mercantile system of accounting, cannot be fatal and ipso facto determinative of the issue as to whether such liability had crystallized during the year und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as decided to pay the amount of bonus/ex-gratia as per a detailed discussion in the matter. As per the Revenue, the detailed discussion has not been elaborated either in the Resolution or even in the course of the assessment proceedings before the Assessing Officer. Under these circumstances, it is contended that no credence be given to the Resolution dated 13.3.2007 as it is self-serving and an afterthought. 14. In this background, we have carefully considered the rival stands. Firstly, the plea of the Revenue articulated before us that the assessee did not act in pursuance to such Resolution, in our view, is clearly unfounded. In fact, it is nobody s case that the assessee has not paid the amount in question. The material on record clearly shows the fact-situation, which is not disputed by the Revenue, that the amounts have been actually paid by the assessee, albeit before the filing of the return. Therefore, the plea of the Revenue that the Resolution has not been acted upon by the assessee merely because there is no entry for the provision in the account books, cannot stand inasmuch as the amounts have been actually paid, albeit, after the close of the year, and such pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer for the reason that there was no separate provision made for payment of gratuity and the assessee could only produce copies of the application made for approval of Gratuity Fund and not approval order. It was also pointed out that the impugned amount was debited by the assessee to Rent, Rates, Taxes . 18. In appeal before the Commissioner of Income-tax (Appeals), it was contended by the assessee that it maintained a group gratuity fund with LIC of India, and that LIC raised a demand for ₹ 40,85,871/- as renewal premium on the basis of actuarial valuation. It was further stated that the assessee had made an application for approval before the Commissioner of Income-tax on 31.5.1995 alongwith the Deed of Variation which was still pending. The plea of the assessee was that even a provision made on a scientific basis on account of gratuity is an allowable deduction as it represented a real liability. According to the assessee, it had not only set up a Trust but also had applied for approval in time and accordingly provided for liability of gratuity as demand by the LIC and also paid the premium towards gratuity on 26.4.2007. The assessee accordingly submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Reserve Bank of India. The Assessing Officer did not accept the submission of the assessee and disallowed the claim of the assessee for the reason that the assessee failed to produce any relevant details. During the appellate proceedings before the Commissioner of Income-tax (Appeals), it was clarified by the assessee that assessee had given loans against old mortgaged assets and some of the loans remained unpaid, which forced the appellant bank to sell off the gold in auctions which was taken as security against loan and the auction proceeds were credited to the loan account and the surplus/excess was credited to the concerned parties account under the head credit to reserve fund , which was liable to be refunded to the respective borrower/customer. Accordingly, it was contended that such amount due was in the form of a liability of the assessee and not income by way of surplus from auction. The Commissioner of Income-tax (Appeals), however, dis-agreed with the submissions of the assessee and held that the surplus was received by the assessee in the course of its carrying on of the business of advancing loans and therefore, any surplus arising out of such action, which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases of non-payment, assessee sold off the pledged gold and the auction proceeds realized in excess of the amounts due was credited to the impugned reserve fund. The claim of the assessee is that the said amount is liable to be refunded to respective borrowers/customers and in that regard it has been asserted that a sum of ₹ 27,076/- has been refunded in the subsequent financial year. It is also the plea of the assessee that after waiting for a reasonable period the entire balance lying in the impugned reserve fund has been offered for taxation in assessment year 2009-2010 as a part of ₹ 14,25,376/-, details of which are stated to have been placed in the Paper Book - 2 at pages 124 to 131. It is pointed out that the sum of ₹ 14,25,376/- includes the amount of ₹ 94,329/- remaining unpaid out of ₹ 1,17,405/-. On this aspect, we are inclined to uphold the plea of the assessee that the impugned amount is not liable to be assessed as income in the year under consideration. However, the plea of the assessee of having offered the requisite sum for taxation in the assessment year 2009-10 is liable to be verified by the Assessing Officer. In case it is found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egard, reliance was placed on the judgment of the Hon ble Uttaranchal High Court in the case of Nainital Bank Ltd. (supra) wherein the binding nature of the RBI guidelines have been appreciated and the provision created on that basis was found to be allowable expenditure. 28. On the other hand, learned Departmental Representative pointed out that the Commissioner of Income-tax (Appeals) made no mistake in disallowing the impugned claim following the subsequent judgment of the Hon ble Supreme Court in the case of Southern Technologies Ltd (supra). 29. We have carefully considered the rival submissions. In our view, the Commissioner of Income-tax (Appeals) has correctly appreciated the position and sustained the disallowance following the judgment of the Hon ble Supreme Court the case of Southern Technologies Ltd. (supra). The Hon ble Supreme Court has clearly pointed out that claim for deduction of an expenditure is liable to be governed by the provisions of the Act and not merely on account of the RBI guidelines. In our view, the ratio of the judgment of the Hon ble Supreme Court the case of Southern Technologies Ltd. (supra) clearly applies to the present case and the claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co-op. Bank to bear the deficit between the income of the Dekahrekh Society and the salaries paid to the Gat Sachivs (operative and Textile Dept s circular with English translation enclosed at pages 64 to 69 of Paper Book 1) and copy of the Rules of Dekharekh Society with translation of the relevant Rule are placed at pages 143 to 146 of paper book no. 2). Details of provisions made in earlier years are placed at page 147 of the Paper Book No. 2. A copy of the Govt. of Maharashtra Agri. Co-operation Department s Notification prescribing contribution @ 1.75% of the outstanding agricultural loans is placed at pages 148 to 151 of Paper Book 2 (see para 9(ii)). The amount of ₹ 15,00,000/- was demanded by the Dekharekh society as per its demand letter dated 7.4.2006 (copy enclosed at pages 152 to 153 of the Paper Book No. 2). On receipt of this demand, the assessee accepted the liability to pay the demanded sum of ₹ 15 lakh by passing a Resolution No 31 dated 17.7.2006. (copy with English translation of the Resolution placed at pages 70 to 72 of Paper Bok No.1). It would be apparent from the Resolution that the liability to pay this amount was accepted during the FY 2006 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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